0001558370-23-007675 | 10-Q | XBRL Viewer | Rhythm Pharmaceuticals INC

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 109,661	$ 127,677
Short-term investments	184,921	205,611
Accounts receivable, net	8,117	6,224
Inventory	5,487	2,917
Prepaid expenses and other current assets	9,652	11,807
Total current assets	317,838	354,236
Property and equipment, net	2,001	2,197
Right-of-use asset	1,088	1,182
Intangible assets, net	7,669	7,883
Restricted cash	328	328
Other long-term assets	16,754	16,655
Total assets	345,678	382,481
Current liabilities:
Accounts payable	13,347	4,797
Accrued expenses and other current liabilities	30,549	32,894
Deferred revenue	1,428	1,434
Lease liability	705	684
Total current liabilities	46,029	39,809
Long-term liabilities:
Deferred royalty obligation	77,520	75,810
Lease liability	1,076	1,260
Derivative liability	1,290	1,340
Total liabilities	125,915	118,219
Stockholders' equity:
Common stock, $0.001 par value: 120,000,000 shares authorized; 56,852,404 and 56,612,429 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	56	56
Additional paid-in capital	981,950	974,356
Accumulated other comprehensive loss	(6)	(92)
Accumulated deficit	(762,237)	(710,058)
Total stockholders' equity	219,763	264,262
Total liabilities and stockholders' equity	$ 345,678	$ 382,481

Summary of Significant Accounting Policies - License Agreements (Details) - Rare Stone Group Ltd. $ in Thousands	1 Months Ended	3 Months Ended				12 Months Ended
	Dec. 31, 2021 USD ($) item shares	Mar. 31, 2023 USD ($)	Sep. 30, 2022 USD ($)	Jun. 30, 2022 USD ($)	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)
Significant Agreements
Realized loss on RareStone equity			$ 1,040
Loss on RareStone equity investment				$ 300
Upfront consideration	$ 8,040
Contract with customer liability revenue recognized		$ 0			$ 0
Upfront payment	7,000
Equity recorded at fair value	1,040			1,040	$ 2,440
Aggregate payment upon achievement of development and commercial milestones	$ 62,500
Shares issued for license agreement (in shares) \| shares	1,077,586
License agreement
Significant Agreements
Number of performance obligations \| item	2
License agreement commercial manufacturing supply discount		$ 1,286				$ 1,286
Contract with customer liability revenue recognized				$ 6,754

Fair Value of Financial Assets and Liabilities - Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value of Financial Assets
Amortized Cost	$ 184,948	$ 205,702
Gross Unrealized Losses	(27)	(91)
Fair Value	184,921	205,611
Corporate debt securities and commercial paper
Fair Value of Financial Assets
Amortized Cost	184,948	205,702
Gross Unrealized Losses	(27)	(91)
Fair Value	$ 184,921	$ 205,611

Related-Party Transactions (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Accounts payable
Related-Party Transactions
Outstanding payments due to consultants	$ 75		$ 13
Consultant
Related-Party Transactions
Expenses paid to consultants	$ 322	$ 480

- Definition

Carrying amount as of the balance sheet date of obligations due all related parties.

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+ Details

Common Stock (Details) - shares		3 Months Ended
Common Stock (Details) - shares	Feb. 09, 2022	Mar. 31, 2023
2017 Employee Stock Purchase Plan
Common Stock
Common stock reserved for issuance		14,547,139
Shares available for future grant		1,340,676
2022 Employment Inducement Plan
Common Stock
Common stock reserved for issuance	1,000,000
Vesting period	4 years
Expiration period	10 years
Shares available for future grant		417,995
Equity Option \| 2017 Employee Stock Purchase Plan
Common Stock
Common stock reserved for issuance		8,632,792
Stock options \| 2022 Employment Inducement Plan
Common Stock
Issuance of stock (in shares)		384,840
Restricted stock units \| 2022 Employment Inducement Plan
Common Stock
Issuance of stock (in shares)		197,165

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2023	Apr. 24, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Entity File Number	001-38223
Entity Registrant Name	RHYTHM PHARMACEUTICALS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-2159271
Entity Address, Address Line One	222 Berkeley Street
Entity Address, Address Line Two	12th Floor
Entity Address, City or Town	Boston
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02116
City Area Code	857
Local Phone Number	264-4280
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	RYTM
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		56,854,940
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001649904
Amendment Flag	false

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Product revenue, net	$ 11,469	$ 1,498
Costs and expenses:
Cost of sales	1,421	230
Research and development	37,945	32,510
Selling, general, and administrative	24,634	21,449
Total costs and expenses	64,000	54,189
Loss from operations	(52,531)	(52,691)
Other income:
Other expense, net	(27)	(233)
Interest expense	(3,061)
Interest income	3,440	160
Total other income (expense), net	352	(73)
Net loss	$ (52,179)	$ (52,764)
Net loss per share, basic (in dollars per share)	$ (0.92)	$ (1.05)
Net loss per share, diluted (in dollars per share)	$ (0.92)	$ (1.05)
Weighted-average common shares outstanding, basic (in shares)	56,708,975	50,326,627
Weighted-average common shares outstanding, diluted (in shares)	56,708,975	50,326,627
Other comprehensive loss:
Net loss	$ (52,179)	$ (52,764)
Foreign currency translation adjustment	21
Unrealized gain (loss), net on marketable securities	65	(628)
Comprehensive loss	$ (52,093)	$ (53,392)

Summary of Significant Accounting Policies - Net loss per share (Details) - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Shares excluded from the computation of diluted net loss per share
Potential common shares	8,632,792	8,968,037
Stock options
Shares excluded from the computation of diluted net loss per share
Potential common shares	6,973,369	7,248,111
Restricted stock units
Shares excluded from the computation of diluted net loss per share
Potential common shares	1,046,232	784,041
Performance stock units
Shares excluded from the computation of diluted net loss per share
Potential common shares	613,191	935,885

Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Finite-Lived Intangible Assets
Total	$ 7,669	$ 7,883
Capitalized Milestones
Finite-Lived Intangible Assets
Estimated life (years)	11 years
Cost	$ 9,000	9,000
Accumulated Amortization	(1,331)	(1,117)
Total	$ 7,669	$ 7,883

Income Taxes

3 Months Ended

Mar. 31, 2023

Income Taxes

Income Taxes

9. Income Taxes

The Company did not record an income tax provision for the three months ended March 31, 2023 and 2022, respectively as the Company generated sufficient tax losses during the period. The Company expects to generate sufficient tax losses in the current year to offset income and thus no current year liability is expected. The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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Right of Use Asset and Lease Liability (Tables)

3 Months Ended

Mar. 31, 2023

Right of Use Asset and Lease Liability

Schedule of operating lease maturities


	Operating Lease
2023	$	627
2024		851
2025		502
Thereafter		—
Total operating lease payments		1,980
Less: imputed interest		(199)
Total operating lease liability	$	1,781

Fair Value of Financial Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value of Financial Assets and Liabilities

Schedule of financial assets and liabilities measured at fair value on a recurring basis


	Fair Value Measurements as of
	March 31, 2023 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	83,773	$	—	$	—	$	83,773
Marketable securities:
Corporate debt securities and commercial paper		—		184,921		—		184,921
Total	$	83,773	$	184,921	$	—	$	268,694
Liabilities:
Derivative liability	$	—	$	—	$	1,290	$	1,290
Total	$	—	$	—	$	1,290	$	1,290


	Fair Value Measurements as of
	December 31, 2022 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Commercial paper	$	—	$	8,484	$	—	$	8,484
Money market funds		99,962		—		—		99,962
Marketable securities:
Corporate debt securities and commercial paper		—		205,611		—		205,611
Total	$	99,962	$	214,095	$	—	$	314,057
Liabilities:
Derivative liability	$	—	$	—	$	1,340	$	1,340
Total		—		—		1,340		1,340

Schedule of fair value net derivative asset liability measured on recurring Basis


	Three months ended
	March 31,
	2023		2022
Beginning aggregate estimated fair value of Level 3 RareStone equity	$	—	$	—
Initial recording of RareStone equity		—		2,440
Change in fair value of embedded derivative		—		—
Ending aggregate estimated fair value of Level 3 RareStone equity	$	—	$	2,440

	Three months ended
	March 31,
	2023		2022
Beginning aggregate estimated fair value of Level 3 liabilities	$	1,340	$	—
Change in fair value of embedded derivative		(50)		—
Ending aggregate estimated fair value of Level 3 liabilities	$	1,290	$	—

Schedule of marketable securities


	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	184,948	$	—	$	(27)	$	184,921
	$	184,948	$	—	$	(27)	$	184,921


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	205,702	$	—	$	(91)	$	205,611
	$	205,702	$	—	$	(91)	$	205,611

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022
Income Taxes
Income taxes	$ 0	$ 0

- Definition

Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

+ References + Details

Related-Party Transactions

3 Months Ended

Mar. 31, 2023

Related-Party Transactions

Related-Party Transactions

11. Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $322 and $480 for the three months ended March 31, 2023 and 2022, respectively. Outstanding payments due to these related parties as of March 31, 2023 and December 31, 2022 were $75 and $13, respectively, and were included within accounts payable on the condensed consolidated balance sheet.

Common Stock

3 Months Ended

Mar. 31, 2023

Common Stock.

Common Stock

10. Common Stock

As of March 31, 2023, an aggregate of 14,547,139 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options, restricted stock units, and performance stock units that have been issued totaling 8,632,792 and 1,340,676 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

On February 9, 2022, the Company’s board of directors adopted the Rhythm Pharmaceuticals, Inc. 2022 Employment Inducement Plan or the Inducement Plan, without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market LLC listing rules or Rule 5635(c)(4). In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company or a subsidiary, as a material inducement to the employee’s entering into employment with the Company or its subsidiary. An aggregate of 1,000,000 shares of the Company’s common stock have been reserved for issuance under the Inducement Plan. The Company will continue to grant awards under the 2017 Plan pursuant to the terms thereof.

The exercise price of stock options granted under the Inducement Plan will not be less than the fair market value of a share of the Company’s common stock on the grant date. Other terms of awards, including vesting requirements, are determined by the Company’s board of directors and are subject to the provisions of the Inducement Plan. Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms. Certain options may provide for accelerated vesting in the event of a change in control. Stock options granted under the Inducement Plan expire no more than 10 years from the date of grant. As of March 31, 2023, 384,840 stock option awards have been issued under the Inducement Plan. As of March 31, 2023, 197,165 restricted stock unit awards have been granted under the Inducement Plan. As of March 31, 2023, 417,995 shares of common stock are available for future grant under the Inducement Plan.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

Nature of Business

3 Months Ended

Mar. 31, 2023

Nature of Business

Nature of Business

1. Nature of Business

Rhythm Pharmaceuticals, Inc. (the “Company” or “we”) is a global, commercial-stage biopharmaceutical company dedicated to transforming the lives of patients and their families living with rare diseases. We are focused on advancing our lead asset, IMCIVREE^® (setmelanotide), as a precision medicine designed to treat hyperphagia and severe obesity caused by rare melanocortin-4 receptor (MC4R) pathway diseases. While obesity affects hundreds of millions of people worldwide, we are advancing IMCIVREE^® (setmelanotide) for a subset of individuals who have hyperphagia, a pathological hunger, and severe obesity due to an impaired MC4R pathway, which may be caused by traumatic injury or genetic variants. The MC4R pathway is an endocrine pathway in the brain that is responsible for regulating hunger, caloric intake and energy expenditure, which consequently affect body weight. IMCIVREE, an MC4R agonist for which we hold worldwide rights, is the first-ever therapy developed for patients with certain ultra-rare diseases that is approved or authorized in the United States (US), European Union (EU) and Great Britain.

The Company is a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc. The Company has wholly owned subsidiaries in the US, Ireland, the United Kingdom, the Netherlands, France, Germany, Italy, Spain and Canada.

The Company is subject to risks and uncertainties common to commercial-stage companies in the biotechnology industry, including but not limited to, risks associated with the commercialization of approved products, completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Commercialization of approved products will require significant resources and in order to market IMCIVREE, the Company must continue to build its sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities.

There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic may continue to impact its patients, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially affect the Company's financial results and business operations for the three months ended March 31, 2023, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

Liquidity

The Company has incurred operating losses and negative cash flows from operations since inception. As of March 31, 2023, the Company had an accumulated deficit of $762,237. The Company has primarily funded these losses through the proceeds from the sales of common and preferred stock, asset sales, royalty financing, out-license arrangements, as well as capital contributions received from the former parent company, Rhythm Holdings LLC. To date, the Company has minimal product revenue and management expects operating losses to continue for the foreseeable future. The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, commercialization activities and general and administrative functions relating to these operations. The future success of

the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations.

At March 31, 2023, the Company had $294,582 of cash and cash equivalents and short-term investments on hand. In the future, the Company will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, product sales and funded research and development programs to maintain the Company's operations and meet the Company's obligations. There is no guarantee that additional equity or other financings will be available to the Company on acceptable terms, or at all. If the Company fails to obtain additional funding when needed, the Company would be forced to scale back, terminate its operations or seek to merge with or be acquired by another company. Management believes that the Company's existing cash and cash equivalents and short-term investments will be sufficient to fund the Company’s operations through at least the next twelve months from the filing of this Quarterly Report on Form 10-Q with the SEC.

Asset Acquisition (Details) - Xinvento B.V. - USD ($) $ in Thousands		3 Months Ended
	Feb. 27, 2023	Mar. 31, 2023
Asset Acquisition [Line Items]
Aggregate Payment Upon Achievement Of Development And Commercial Milestones	$ 206,000
Clinical development milestone payments	6,000
Regulatory approval and commercial milestones milestone payments	125,000
Sales milestone payments	75,000
Purchase consideration	5,400
Cash consideration	4,520
Holdback, payable on the one-year anniversary of the acquisition	500
Acquisition related costs	$ 375
Research and development
Asset Acquisition [Line Items]
Purchase consideration		$ 5,400

Fair Value of Financial Assets and Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value of Financial Assets
Carrying amount of cash and cash equivalents and short term investments	$ 294,582	$ 333,288
Fair value of financial assets and liabilities
Marketable Securities	184,921	205,611
Derivative liability	1,290	1,340
Corporate Debt Securities and Commercial Paper
Fair value of financial assets and liabilities
Marketable Securities	184,921	205,611
Recurring \| Estimated fair value
Fair value of financial assets and liabilities
Fair value of assets	268,694	314,057
Derivative liability	1,290	1,340
Recurring \| Derivative on Royalty Financing \| Estimated fair value
Fair value of financial assets and liabilities
Derivative liability	1,290	1,340
Recurring \| Commercial Paper \| Estimated fair value
Fair value of financial assets and liabilities
Cash Equivalents		8,484
Recurring \| Corporate Debt Securities and Commercial Paper \| Estimated fair value
Fair value of financial assets and liabilities
Marketable Securities	184,921	205,611
Recurring \| Money Market Funds \| Estimated fair value
Fair value of financial assets and liabilities
Cash Equivalents	83,773	99,962
Recurring \| Level 1 \| Estimated fair value
Fair value of financial assets and liabilities
Fair value of assets	83,773	99,962
Recurring \| Level 1 \| Money Market Funds \| Estimated fair value
Fair value of financial assets and liabilities
Cash Equivalents	83,773	99,962
Recurring \| Level 2 \| Estimated fair value
Fair value of financial assets and liabilities
Fair value of assets	184,921	214,095
Recurring \| Level 2 \| Commercial Paper \| Estimated fair value
Fair value of financial assets and liabilities
Cash Equivalents		8,484
Recurring \| Level 2 \| Corporate Debt Securities and Commercial Paper \| Estimated fair value
Fair value of financial assets and liabilities
Marketable Securities	184,921	205,611
Recurring \| Level 3 \| Estimated fair value
Fair value of financial assets and liabilities
Derivative liability	1,290	1,340
Recurring \| Level 3 \| Derivative on Royalty Financing \| Estimated fair value
Fair value of financial assets and liabilities
Derivative liability	$ 1,290	$ 1,340

Fair Value of Financial Assets and Liabilities - Changes in Embedded Derivative Liability (Details) - Revenue Interest Financing Agreement $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Fair value of embedded derivative liability
Fair value of embedded derivative liability, beginning balance	$ 1,340
Change in fair value of embedded derivative	(50)
Fair value of embedded derivative liability, ending balance	$ 1,290

Inventory

3 Months Ended

Mar. 31, 2023

Inventory

Inventory

4. Inventory

Inventory consists of the following:


	March 31,		December 31,
	2023		2022
Raw Materials	$	4,696	$	2,722
WIP		—		—
Finished Goods		791		195
Total Inventory	$	5,487	$	2,917

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total
Beginning balance at Dec. 31, 2021	$ 50	$ 813,041	$ (1)	$ (528,939)	$ 284,151
Beginning balance (in shares) at Dec. 31, 2021	50,283,574
Increase (Decrease) in Stockholders' Equity
Stock-based compensation expense		4,611			4,611
Issuance of common stock in connection with ESPP		399			399
Issuance of common stock in connection with ESPP (in shares)	61,518
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units (in shares)	48,639
Unrealized loss or gain on marketable securities			(628)		(628)
Net loss				(52,764)	(52,764)
Ending balance at Mar. 31, 2022	$ 50	818,051	(629)	(581,703)	235,769
Ending balance (in shares) at Mar. 31, 2022	50,393,731
Beginning balance at Dec. 31, 2022	$ 56	974,356	(92)	(710,058)	264,262
Beginning balance (in shares) at Dec. 31, 2022	56,612,429
Increase (Decrease) in Stockholders' Equity
Stock-based compensation expense		6,376			6,376
Issuance of common stock in connection with ESPP		665			665
Issuance of common stock in connection with ESPP (in shares)	32,169
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units		553			553
Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units (in shares)	207,806
Foreign currency translation adjustment			21		21
Unrealized loss or gain on marketable securities			65		65
Net loss				(52,179)	(52,179)
Ending balance at Mar. 31, 2023	$ 56	$ 981,950	$ (6)	$ (762,237)	$ 219,763
Ending balance (in shares) at Mar. 31, 2023	56,852,404

Inventory (Tables)

3 Months Ended

Mar. 31, 2023

Inventory

Schedule of inventory


	March 31,		December 31,
	2023		2022
Raw Materials	$	4,696	$	2,722
WIP		—		—
Finished Goods		791		195
Total Inventory	$	5,487	$	2,917

Right of Use Asset and Lease Liability

3 Months Ended

Mar. 31, 2023

Right of Use Asset and Lease Liability

Right of Use Asset and Lease Liability

7. Right of Use Asset and Lease Liability

The Company has a material operating lease for its head office facility and other immaterial operating leases for certain equipment. The Company’s office lease has a remaining lease term of 2.3 years. The Company measured the lease liability associated with the office lease using a discount rate of 10% at inception. The Company estimated the incremental borrowing rate for the leased asset based on a range of comparable interest rates the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment. As of March 31, 2023, the Company has not entered into any lease arrangements classified as a finance lease.

The Company’s corporate headquarters is located in Boston, Massachusetts. This facility houses the Company’s research, clinical, regulatory, commercial and administrative personnel. The Company’s lease agreement commenced May 2019 and has a term of six years with a five-year renewal option to extend the lease. The Company has not included the five-year renewal option to extend the lease in its measurement of the right-of-use asset or lease liability.

The following table presents the maturities of the Company’s operating lease liability related to office space as of March 31, 2023, all of which is under a non-cancellable operating lease:


	Operating Lease
2023	$	627
2024		851
2025		502
Thereafter		—
Total operating lease payments		1,980
Less: imputed interest		(199)
Total operating lease liability	$	1,781

Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2023

Intangible Assets

Schedule of finite-lived intangible assets


		As of March 31, 2023						As of December 31, 2022
	Estimated life (years)	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net

Capitalized Milestones	11	$	9,000	$	(1,331)	$	7,669	$	9,000	$	(1,117)	$	7,883

Schedule of amortization expense


2023	$	641
2024		855
2025		855
2026		855
2027		855
Thereafter		3,608
Total	$	7,669

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Operating activities
Net loss	$ (52,179)	$ (52,764)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	6,376	4,611
Depreciation and amortization	457	350
Non-cash interest expense and amortization of debt issuance costs	3,061
Non-cash rent expense	94	(65)
Change in fair value of embedded derivative liability	(50)
Acquired IPR&D assets classified as investing activities	5,395
Changes in operating assets and liabilities:
Accounts receivable	(1,893)
Inventory	(2,570)
Prepaid expenses and other current assets	(186)	950
Deferred revenue	(6)
Other long-term assets	(99)	(6,661)
Accounts payable, accrued expenses and other liabilities	5,167	(53)
Net cash used in operating activities	(36,433)	(53,632)
Investing activities
Purchases of short-term investments	(69,644)	(39,479)
Maturities of short-term investments	92,675	112,128
Acquisition of IPR&D assets, including transaction costs	(4,520)
Purchases of property and equipment	(47)	(127)
Net cash provided by investing activities	18,464	72,522
Financing activities
Repayment of deferred royalty obligation	(1,351)
Proceeds from the exercise of stock options	553
Proceeds from issuance of common stock from ESPP	665	399
Net cash (used in) provided by financing activities	(133)	399
Effect of exchange rates on cash	86
Net (decrease) increase in cash, cash equivalents and restricted cash	(18,016)	19,289
Cash, cash equivalents and restricted cash at beginning of period	128,005	59,576
Cash, cash equivalents and restricted cash at end of period	109,989	$ 78,865
Supplemental disclosure of non-cash investing activities
Holdback payable associated with the acquisition, in accrued expenses	500
Transaction costs associated with the acquisition, in accounts payable	$ 375

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company's unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP, and the applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, of the Financial Accounting Standards Board, or FASB. As permitted under these rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted.

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2023 and 2022 and the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 and the related footnote disclosures are unaudited. In management's opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2022 and include all adjustments, which are all normal recurring adjustments, necessary for the fair presentation of the interim financial statements. The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of March 31, 2023, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Significant estimates relied upon in preparing these financial statements include estimates related to determining our net product revenue, license revenue, accruals related to research and development expenses, assumptions used to record stock-based compensation expense, interest expense on our deferred royalty obligation, assumptions used to value the embedded derivative in our deferred royalty obligation, assumptions used to value the common stock received from RareStone Group

Ltd., or RareStone, and the valuation allowance on the Company's deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of Rhythm Pharmaceuticals, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification of Prior Year Balances

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows. Specifically, in the condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2022, the Company has reclassified $160 of interest income which was previously recorded within other (expense) income, net to interest income.

Segment Information

Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company currently operates in one business segment, which is the development and commercialization of therapies for patients with rare diseases. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. The Company does not operate separate lines of business with respect to its product or product candidates. Accordingly, the Company has one reportable segment.

Off-Balance Sheet Risk and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents and short-term investments, which are maintained at two federally insured financial institutions. The deposits held at these two institutions are in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to secure amounts due from its customers. As of March 31, 2023 and December 31, 2022, approximately 83% and 85% of all of the Company’s revenue was generated from a single customer in the United States.

The Company relies on third-party manufacturers and suppliers for the manufacture and supply of its product. The inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future operating results. A change in the relationship with the suppliers or manufacturer, or an adverse change in their business, could materially impact future operating results.

The Company relies on separate third parties to perform genetic testing in the United States and Europe, respectively. The inability of the vendor to fulfill testing services for the Company could materially impact future operating results and adversely impact our ability to further develop setmelanotide. A change in the relationship with the genetic testing service providers, or an adverse change in their business, could materially impact future operating results.

Accounts Receivable, net

Accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts and any estimated expected credit losses. The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. To date, the Company has not experienced any credit losses. The Company's contracts with its customers have customary payment terms that generally require payment within 90 days. The Company analyzes amounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers. As of March 31, 2023 and December 31, 2022, the Company determined an allowance for doubtful account was not required based upon our review of contractual payments and our customers’ circumstances.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Product Revenue, net

In the United States (the “U.S.”), which accounts for the largest portion of our total revenues, the Company sells its product to a limited number of specialty pharmacies. The product is distributed through third-party logistics, or 3PL, distribution agent that does not take title to the product. Once the product is delivered to the Company’s specialty pharmacy provider, our customer in the U.S., the customer (or “wholesaler”) takes title to the product. The wholesaler then distributes the product to patients. In our distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product. Internationally, we make sales primarily to specialty distributors and retail pharmacy chains, as well as hospitals, many of which are government-owned or supported. The Company generally does not offer returns of product sold to the customer.

Revenue from product sales is recognized when the customer obtains control of our product, which occurs at a point in time, upon transfer of title to the customer because at that point in time we have no ongoing obligations to the customer. There are no other performance obligations besides the sale of product. We classify payments to our customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our consolidated statements of operations and comprehensive (loss) income. Otherwise, payments to a customer or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. Taxes collected from the customer relating to product sales and remitted to governmental authorities are excluded from revenue. Because our payment terms are generally ninety days or less, the Company concluded there is not a significant financing component because the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred since the expected amortization period of the asset that we would have recognized is one year or less.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price, or the transaction price, which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between us and our customers, health care providers and other indirect customers relating to the sale of IMCIVREE. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is

considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following are the components of variable consideration related to product revenue:

Chargebacks: The Company estimates obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers and patients at prices lower than the list prices charged to our customers. The government and other entities charge us for the difference between what they pay for the product and the selling price to our customers. The Company records reserves for these chargebacks related to product sold to our customers during the reporting period, as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers and patients in future periods.

Government rebates: The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the United States as well as certain government rebates and pricing adjustments in certain international markets that we operate. We estimate Medicaid, Medicare and Tricare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses and other current liabilities on our consolidated balance sheets. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Trade discounts and allowances: The Company provides customary invoice discounts on IMCIVREE sales to certain of our customers for prompt payment that are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive and pay for various distribution services from our customers in the distribution channel. For services that are either not distinct from the sale of our product or for which we cannot reasonably estimate the fair value, such fees are classified as a reduction of product revenue.

Product returns: Our customers have limited return rights related to the product’s damage or defect. The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized. Based on the distribution model for IMCIVREE and the price of IMCIVREE, the Company believes there will be minimal returns.

Other incentives: Other incentives include co-payment assistance the Company provides to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue. The estimate is recorded as a reduction of revenue in the same period the related revenue is recognized.

Provisions for cash discounts are recorded as reductions of accounts receivable, and fees, rebates, and other incentives are recorded as a component of accrued expenses.

During the three months ended March 31, 2023 and 2022, we recorded product revenue, net, of $11,469 and $1,498, respectively. The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the three months ended March 31, 2023 due to the immateriality of the revenue recognized during the periods.

License Agreements

We generate revenue from license or similar agreements with pharmaceutical companies for the development and commercialization of certain of our products and product candidates. Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances,

research and development services, and participation on certain committees with the counterparty. Payments made by the customers may include non-refundable upfront fees, payments upon the exercise of customer options, payments based upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized.

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize the transaction price allocated to the license as revenue upon transfer of control of the license. We evaluate all other promised goods or services in the agreement to determine if they are distinct. If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is distinct. Optional future services where any additional consideration paid to us reflects their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations. If optional future services are priced in a manner which provides the customer with a significant or incremental discount, they are material rights, and are accounted for as separate performance obligations.

We utilize judgment to determine the transaction price. In connection therewith, we evaluate contingent milestones at contract inception to estimate the amount which is not probable of a material reversal to include in the transaction price using the most likely amount method. Milestone payments that are not within our control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore the variable consideration is constrained. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each reporting period, we re-evaluate the probability of achieving development milestone payments that may not be subject to a material reversal and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue, as well as earnings, in the period of adjustment.

We then determine whether the performance obligations or combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress, as applicable, for each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded within deferred revenue. Contract liabilities within deferred revenue are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

For arrangements that include sales-based royalties, including sales-based milestone payments, and a license of intellectual property that is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalties have been allocated has been satisfied (or partially satisfied).

RareStone Group Ltd.

In December 2021, the Company entered into an Exclusive License Agreement with RareStone Group Ltd., or the RareStone License. Pursuant to the RareStone License, we granted to RareStone an exclusive, sublicensable, royalty-bearing license under certain patent rights and know-how to develop, manufacture, commercialize and otherwise exploit any pharmaceutical product that contains setmelanotide in the diagnosis, treatment or prevention of conditions and diseases in humans in China, including mainland China, Hong Kong and Macao. RareStone has a right of first negotiation in the event that the Company chooses to grant a license to develop or commercialize the licensed product in Taiwan. The arrangement includes a license and an additional performance obligation to supply product upon the request of RareStone.

According to the terms of the RareStone License, RareStone has agreed to seek local approvals to commercialize IMCIVREE for the treatment of obesity and hyperphagia due to biallelic POMC, PCSK1 or LEPR deficiency, as well as Bardet-Biedl and Alström syndromes. Additionally, RareStone has agreed to fund efforts to identify and enroll patients from China in the Company’s global EMANATE trial, a Phase 3, randomized, double-blind, placebo-controlled trial to

evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of POMC/PCSK1 or LEPR; certain variants of the SRCI gene, and certain variants of the SH2B1 gene. In accordance with the terms of the RareStone License, RareStone made an upfront payment to Rhythm of $7,000 and issued Rhythm 1,077,586 ordinary shares. The Company is eligible to receive development and commercialization milestones of up to $62,500, as well as tiered royalty payments on annual net sales of IMCIVREE.

The Company initially estimated the fair value of the RareStone equity to be $2,440 based on a preliminary valuation during the first quarter of 2022. Upon completion of the valuation procedures during the second quarter of 2022, the Company concluded the initial fair value of the RareStone equity to be $1,040. During the third quarter of 2022, the Company estimated the fair value of the RareStone equity to be de minimis based upon the results of an updated valuation and recorded an other-than-temporary impairment of $1,040 related to the decline in fair value as a component of other expense in our consolidated statements of operations and other comprehensive loss for the year ended December 31, 2022 (recorded in the third quarter of 2022). The other-than-temporary impairment of $1,040 included the reclassification of a $300 unrealized loss previously recorded as a component of accumulated other comprehensive income (loss) in our condensed consolidated statement of stockholders’ equity during the second quarter of 2022.

The Company received total upfront consideration of $8,040 comprised of an upfront payment of $7,000, and the estimated fair value of the RareStone equity of $1,040. The Company determined that the RareStone License contains two performance obligations, the delivery of the license and the supply of clinical and commercial product. The Company further determined the supply of commercial product to RareStone contains a significant future discount and estimates the discount to be $1,286, which is recorded as a component of deferred revenue on the condensed consolidated balance sheet at March 31, 2023 and December 31,2022.

Based on a relative fair-value allocation between the license and the manufacture of clinical and commercial product, the Company recognized $6,754 of license revenue in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2022 (recorded in the second quarter of 2022 upon the Company fulfilling its obligations in transferring the license to RareStone). The discount related to commercial manufacturing supply will be deferred and recognized over the commercial supply period or upon termination of the agreement. No license revenue was recognized during the three-month periods ended March 31, 2023 or 2022, respectively.

On October 28, 2022, we delivered written notice, or the Notice, to RareStone that we have terminated the RareStone License for cause. In accordance with the Notice, we maintain that RareStone has materially breached its obligations under the RareStone License to fund, perform or seek certain key clinical studies and waivers, including with respect to our global EMANATE trial, among other obligations. On December 21, 2022, RareStone provided written notice to us that it objects to the claims in the Notice, including our termination of the RareStone License for cause. On March 16, 2023, we provided written notice to RareStone reaffirming our position that RareStone has materially breached its obligations under the RareStone License and that we have terminated the RareStone License for cause, and also requested documentation supporting RareStone’s purported dispute notice objecting to the claims in the Notice. RareStone may attempt to cure the alleged breaches, which the Company believe to be incurable, within the timeframe specified under the RareStone License.

Deferred Royalty Obligation

The Company treats the debt obligation to HealthCare Royalty Management, LLC as discussed further in Note 12, “Long-term Obligations”, as a deferred royalty obligation, amortized using the effective interest rate method over the estimated life of the revenue streams. The Company recognizes interest expense thereon using the effective rate, which is based on our current estimates of future revenues over the life of the arrangement. In connection therewith, the Company periodically assesses its expected revenues using internal projections, imputes interest on the carrying value of the deferred royalty obligation, and records interest expense using the imputed effective interest rate. To the extent the Company’s estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of our deferred royalty obligation. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization

period of the issuance costs requires the Company to make estimates that could impact the classification of such costs, as well as the period over which such costs will be amortized.

Inventory

Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE in the United States, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates. The Company values inventories at the lower of cost or estimated net realizable value. The Company determines the cost of inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. Raw materials and work in process includes all inventory costs prior to packaging and labelling, including raw materials, active pharmaceutical ingredient, and drug product. Finished goods include packaged and labelled products. Raw materials and work in process that may be used for either research and development or commercial sale are classified as inventory until the material is consumed or otherwise allocated for research and development. If the material is intended to be used for research and development, it is expensed as research and development once that determination is made.

Cost of Product Sales

Cost of product sales consists of manufacturing costs, transportation and freight, amortization of capitalized intangibles, royalty payments and indirect overhead costs associated with the manufacturing and distribution of IMCIVREE. Cost of product sales may also include periodic costs related to certain manufacturing services and inventory adjustment charges. Finally, cost of sales may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances.

Intangible Assets, Net

Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis over their remaining useful lives, which are estimated to be the remaining patent life. If our estimate of the product’s useful life is shorter than the remaining patent life, then a shorter period is used. Amortization expense is recorded as a component of cost of sales on the consolidated statements of operations and comprehensive loss.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, which consist primarily of property and equipment and finite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the Company measures the impairment to be recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, less the cost to sell. No events or changes in circumstances existed to require an impairment assessment during the three months ended March 31, 2023 and 2022, respectively.

Acquired IPR&D and Milestones Expenses

In an asset acquisition, payments incurred prior to regulatory approval to acquire rights to in-process research and development projects are expensed as acquired IPR&D and recorded as a component of research and development expense in the condensed consolidated statements of operations and comprehensive net loss unless the project has an alternative future use. These costs include upfront and development milestone payments related to licensing arrangements, or other asset acquisitions that provide rights to develop, manufacture and/or sell pharmaceutical products. Where contingent development milestone payments are due to third parties, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved. Regulatory and commercial milestone payments made to third parties

subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Foreign Currency Translation

The functional currencies of the Company’s foreign subsidiaries are Euros and British pound sterling. Foreign subsidiary earnings are translated into U.S. dollars using average exchange rates. The net assets of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive income (loss) in the condensed consolidated statements of operations and comprehensive loss.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at March 31, 2023 and December 31, 2022 were carried at fair value, determined according to the fair value hierarchy. See Note 6 for further discussion.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses and other current liabilities approximate their fair values due to their short-term maturities at March 31, 2023 and December 31, 2022, respectively.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per common share is computed by adjusting the weighted average shares outstanding for the potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method. For purposes of the diluted net loss per share calculation, stock options, performance stock units and restricted stock units are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share is the same for all periods presented.

The following table includes the potential common shares that were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive for the periods indicated:


	Three Months Ended
	March 31,
	2023		2022
Stock options		6,973,369		7,248,111
Restricted stock units		1,046,232		784,041
Performance stock units		613,191		935,885
Potential common shares		8,632,792		8,968,037

Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.

Application of New or Revised Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Intangible Assets

3 Months Ended

Mar. 31, 2023

Intangible Assets

Intangible Assets

8. Intangible Assets


		As of March 31, 2023						As of December 31, 2022
	Estimated life (years)	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net

Capitalized Milestones	11	$	9,000	$	(1,331)	$	7,669	$	9,000	$	(1,117)	$	7,883

As of March 31, 2023, the Company’s finite-lived net intangible assets, which totaled $7,669 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S. in March 2021 and in France in March 2022.

As of March 31, 2023, amortization expense for the next five years and beyond is summarized as follows:


2023	$	641
2024		855
2025		855
2026		855
2027		855
Thereafter		3,608
Total	$	7,669

Amortization expense totaled $214 and $130 for the three months ended March 31, 2023 and 2022, respectively Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive loss.

Long-Term Obligations

3 Months Ended

Mar. 31, 2023

Long-Term Obligations

Long-Term Obligations

12. Long-Term Obligations

On June 16, 2022, we entered into a RIFA with entities managed by HealthCare Royalty Management, LLC, collectively referred to as the Investors. Pursuant to the RIFA and subject to customary closing conditions, the Investors have agreed to pay the Company an aggregate investment amount of up to $100,000, or the Investment Amount. Under the terms of the RIFA, we received $37,500 on June 29, 2022 upon FDA approval of IMCIVREE in BBS, referred to as the Initial Investment Amount, and we received an additional $37,500 on September 29, 2022 of the Investment Amount upon EMA approval for BBS. We are entitled to receive the remaining $25,000 of the Investment Amount forty-five business days following achievement of a specified amount of cumulative net sales of IMCIVREE between July 1, 2022 and September 30, 2023.

As consideration for the Investment Amount and pursuant to the RIFA, we agreed to pay the Investors a tiered royalty on our annual net revenues, or Revenue Interest, including worldwide net product sales and upfront payments and milestones. The applicable tiered percentage will initially be 11.5% on annual net revenues up to $125,000, 7.5% on annual net revenues of between $125,000 and $300,000 and 2.5% on annual net revenues exceeding $300,000. If the Investors have not received cumulative minimum payments equal to 60% of the amount funded by the Investors to date by March 31, 2027, or 120% of the amount funded by the Investors to date by March 31, 2029, we must make a cash payment immediately following each applicable date to the Investors sufficient to gross the Investors up to such minimum amounts after giving full consideration of the cumulative amounts paid by us to the Investors through each date, referred to as the Under Performance Payment. As the repayment of the funded amount is contingent upon worldwide net product sales and upfront payments, milestones, and royalties, the repayment term may be shortened or extended depending on actual worldwide net product sales and upfront payments, milestones, and royalties.

The Investors’ rights to receive the Revenue Interests will terminate on the date on which the Investors have received payments equal to a certain percentage of the funded portion of the Investment Amount including the aggregate of all payments made to the Investors as of such date, each percentage tier referred to as the Hard Cap, unless the RIFA is earlier terminated. The total Revenue Interests payable by us to the Investors is capped between 185% and 250% of the Investment Amount paid, dependent on the aggregate royalty paid between 2028 and 2032. If a change of control of occurs,

the Investors may accelerate payments due under the RIFA up to the Hard Cap plus any other obligations payable under the RIFA.

The repayment period commenced on July 8, 2022 for the Initial Investment Amount, and expires on the earlier of (i) the date at which the Investors received cash payments totaling an aggregate of a Hard Cap ranging from 185% to 250% of the Initial Investment Amount or (ii) the legal maturity date of July 8, 2034. If the Investors have not received payments equal to 250% of the Investment Amount by the twelve-year anniversary of the initial closing date, we will be required to pay an amount equal to the Investment Amount plus a specific annual rate of return less payments previously received by Investors. In the event of a change of control, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time, ranging from 185% to 250% plus any Under Performance Payment of the Investment Amount less payments previously received by Investors. In addition, upon the occurrence of an event of default, including, among others, our failure to pay any amounts due to Investors under the deferred royalty obligation, insolvency, our failure to pay indebtedness when due, the revocation of regulatory approval of IMCIVREE in the U.S. or our breach of any covenant contained in the RIFA and our failure to cure the breach within the prescribed time frame, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time of default ranging from 185% to 250% plus any Under Performance Payment of the Investment Amount less payments previously received by Investors. In addition, upon an event of default, Investors may exercise all other rights and remedies available under the RIFA, including foreclosing on the collateral that was pledged to Investors, which consists of all of our present and future assets relating to IMCIVREE.

We have evaluated the terms of the RIFA and concluded that the features are similar to those of a debt instrument. Accordingly, we have accounted for the transaction as long-term debt and presented it as a deferred royalty obligation on our condensed consolidated balance sheets. We have further evaluated the terms of the RIFA and determined that the repayment of the Hard Cap in effect at the time which ranges from 185% to 250% of the Investment Amount, less any payments made to date, upon a change of control is an embedded derivative that requires bifurcation from the debt instrument and fair value recognition. We determined the fair value of the derivative using an option pricing Monte Carlo simulation model taking into account the probability of change of control occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements. The aggregate fair value of the embedded derivative liability was $1,290 and $1,340 as of March 31, 2023 and December 31, 2022, respectively. We will remeasure the embedded derivative to fair value each reporting period until the time the features lapse and/or termination of the deferred royalty obligation. For the three-month period ended March 31, 2023 we recognized other income in the amount of $50, due to the remeasurement of the embedded derivative liability. The carrying value of the deferred royalty obligation as of March 31, 2023 was $77,520 based on $75,000 of proceeds, net of the fair value of the bifurcated embedded derivative liability upon execution of the RIFA, and debt issuance costs incurred. The carrying value of the deferred royalty obligation approximated fair value as of March 31, 2023 and December 31, 2022. The effective interest rate as of March 31, 2023 was 16.37%. In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $2,662. Debt issuance costs have been netted against the debt and are being amortized over the estimated term of the debt using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI https://asc.fasb.org/topic&trid=2208564

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1E
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (i)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

+ Details

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock par value per share	$ 0.001	$ 0.001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value per share	$ 0.001	$ 0.001
Common stock, authorized	120,000,000	120,000,000
Common stock, issued	56,852,404	56,612,429
Common stock, outstanding	56,852,404	56,612,429

Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accrued Expenses and Other Current Liabilities
Research and development costs	$ 13,956	$ 11,379
Professional fees	3,417	4,502
Payroll related	5,501	11,444
Royalties	586	440
Sales Allowances	4,265	2,710
Other	2,824	2,419
Accrued expenses and other current liabilities	$ 30,549	$ 32,894

Intangible Assets - Amortization expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Definite-lived intangible assets
2023	$ 641
2024	855
2025	855
2026	855
2027	855
Thereafter	3,608
Total	7,669		$ 7,883
Amortization expense	$ 214	$ 130

Long-Term Obligations (Details) - USD ($) $ in Thousands		3 Months Ended	15 Months Ended
Long-Term Obligations (Details) - USD ($) $ in Thousands	Jun. 16, 2022	Mar. 31, 2023	Sep. 30, 2023	Dec. 31, 2022	Sep. 29, 2022	Jun. 29, 2022
Long-Term Obligations
Debt repayment		$ 1,351
Deferred royalty obligation		77,520		$ 75,810
Revenue Interest Financing Agreement
Long-Term Obligations
Initial investment amount received under Revenue Interest Financing Agreement ("RIFA")					$ 37,500	$ 37,500
Revenue interest payment period	12 years
Fair value of embedded derivative liability		1,290		$ 1,340
Change in fair value of derivative		50
Deferred royalty obligation		77,520
Revenue Interest Financing Agreement ("RIFA")		$ 75,000
Effective interest rate		16.37%
Debt issuance costs		$ 2,662
Revenue Interest Financing Agreement \| 45 business days after achievement
Long-Term Obligations
Initial investment amount received under Revenue Interest Financing Agreement ("RIFA")			$ 25,000
Business days			45 days
Revenue Interest Financing Agreement \| Annual net revenues up to 125 million
Long-Term Obligations
Royalty interest (as a percent)	11.50%
Threshold annual net revenues	$ 125,000
Revenue Interest Financing Agreement \| Annual net revenues between 125 million and 300 million
Long-Term Obligations
Royalty interest (as a percent)	7.50%
Revenue Interest Financing Agreement \| Annual net revenues exceeding 300 million
Long-Term Obligations
Royalty interest (as a percent)	2.50%
Threshold annual net revenues	$ 300,000
Revenue Interest Financing Agreement \| March 31, 2027
Long-Term Obligations
Threshold cumulative minimum payments (as a percent)	60.00%
Revenue Interest Financing Agreement \| March 31, 2029
Long-Term Obligations
Threshold cumulative minimum payments (as a percent)	120.00%
Revenue Interest Financing Agreement \| Minimum
Long-Term Obligations
Revenue interest cap (as a percent)	185.00%
Revenue Interest Financing Agreement \| Minimum \| Annual net revenues between 125 million and 300 million
Long-Term Obligations
Threshold annual net revenues	$ 125,000
Revenue Interest Financing Agreement \| Maximum
Long-Term Obligations
Aggregate investment amount	$ 100,000
Revenue interest cap (as a percent)	250.00%
Revenue Interest Financing Agreement \| Maximum \| Annual net revenues between 125 million and 300 million
Long-Term Obligations
Threshold annual net revenues	$ 300,000

Nature of Business (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Nature of Business
Accumulated deficit	$ 762,237	$ 710,058
Carrying amount of cash and cash equivalents and short term investments	$ 294,582	$ 333,288

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Basis of Presentation

Use of Estimates

Principles of Consolidation

Reclassification of Prior Year Balances

Segment Information

Off-Balance Sheet Risk and Concentrations of Credit Risk

Accounts Receivable, net

Revenue Recognition

Product Revenue, net

Reserves for Variable Consideration

The following are the components of variable consideration related to product revenue:

Provisions for cash discounts are recorded as reductions of accounts receivable, and fees, rebates, and other incentives are recorded as a component of accrued expenses.

License Agreements

RareStone Group Ltd.

Deferred Royalty Obligation

period of the issuance costs requires the Company to make estimates that could impact the classification of such costs, as well as the period over which such costs will be amortized.

Inventory

Cost of Product Sales

Intangible Assets, net

Intangible Assets, Net

Impairment of Long-Lived Assets

Acquired IPR&D and Milestones Expenses

subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Foreign Currency Translation

Fair Value Measurements

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Net Loss Per Share

The following table includes the potential common shares that were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive for the periods indicated:


	Three Months Ended
	March 31,
	2023		2022
Stock options		6,973,369		7,248,111
Restricted stock units		1,046,232		784,041
Performance stock units		613,191		935,885
Potential common shares		8,632,792		8,968,037

Subsequent Events

Application of New or Revised Accounting Standards

Accrued Expenses and Other Current Liabilities

3 Months Ended

Mar. 31, 2023

Accrued Expenses and Other Current Liabilities

Accrued Expenses and Other Current Liabilities

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	March 31,		December 31,
	2023		2022
Research and development costs	$	13,956	$	11,379
Professional fees		3,417		4,502
Payroll related		5,501		11,444
Royalties		586		440
Sales Allowances		4,265		2,710
Other		2,824		2,419
Accrued expenses and other current liabilities	$	30,549	$	32,894

Accrued Expenses and Other Current Liabilities (Tables)

3 Months Ended

Mar. 31, 2023

Accrued Expenses and Other Current Liabilities

Schedule of accrued expenses


	March 31,		December 31,
	2023		2022
Research and development costs	$	13,956	$	11,379
Professional fees		3,417		4,502
Payroll related		5,501		11,444
Royalties		586		440
Sales Allowances		4,265		2,710
Other		2,824		2,419
Accrued expenses and other current liabilities	$	30,549	$	32,894

Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Inventory
Raw Materials	$ 4,696	$ 2,722
Finished Goods	791	195
Total Inventory	$ 5,487	$ 2,917

Fair Value of Financial Assets and Liabilities - Changes in Level 3 Securities (Details) - Level 3 $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Fair Value of Financial Assets
Initial recording of RareStone equity	$ 2,440
Ending aggregate estimated fair value of Level 3 RareStone equity	$ 2,440

Right of Use Asset and Lease Liability (Details)	3 Months Ended
Right of Use Asset and Lease Liability (Details)	Mar. 31, 2023
Right of Use Asset and Lease Liability
Remaining term of operating lease (in years)	2 years 3 months 18 days
Operating lease discount rate	10.00%
Lease term (in years)	6 years
Lease renewal term (in years)	5 years
Option to extend	true

Fair Value of Financial Assets and Liabilities

3 Months Ended

Mar. 31, 2023

Fair Value of Financial Assets and Liabilities

Fair Value of Financial Assets and Liabilities

6. Fair Value of Financial Assets and Liabilities

As of March 31, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $294,582 and $333,288, respectively, which approximates fair value. Cash and cash equivalents and short-term investments includes investments in U.S. treasury securities and money market funds that invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1. The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade corporations.

The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:


	Fair Value Measurements as of
	March 31, 2023 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	83,773	$	—	$	—	$	83,773
Marketable securities:
Corporate debt securities and commercial paper		—		184,921		—		184,921
Total	$	83,773	$	184,921	$	—	$	268,694
Liabilities:
Derivative liability	$	—	$	—	$	1,290	$	1,290
Total	$	—	$	—	$	1,290	$	1,290


	Fair Value Measurements as of
	December 31, 2022 using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Commercial paper	$	—	$	8,484	$	—	$	8,484
Money market funds		99,962		—		—		99,962
Marketable securities:
Corporate debt securities and commercial paper		—		205,611		—		205,611
Total	$	99,962	$	214,095	$	—	$	314,057
Liabilities:
Derivative liability	$	—	$	—	$	1,340	$	1,340
Total		—		—		1,340		1,340

The estimated fair value of the derivative liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty was determined using Level 3 inputs. The fair value measurement of the derivative liability is sensitive to changes in the unobservable inputs used to value the financial instrument. Changes in the inputs could result in changes to the fair value of each financial instrument.

The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 12, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other (expense) income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of IMCIVREE, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument.


	Three months ended
	March 31,
	2023		2022
Beginning aggregate estimated fair value of Level 3 RareStone equity	$	—	$	—
Initial recording of RareStone equity		—		2,440
Change in fair value of embedded derivative		—		—
Ending aggregate estimated fair value of Level 3 RareStone equity	$	—	$	2,440

	Three months ended
	March 31,
	2023		2022
Beginning aggregate estimated fair value of Level 3 liabilities	$	1,340	$	—
Change in fair value of embedded derivative		(50)		—
Ending aggregate estimated fair value of Level 3 liabilities	$	1,290	$	—

Marketable Securities

The following tables summarize the Company's marketable securities:


	March 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	184,948	$	—	$	(27)	$	184,921
	$	184,948	$	—	$	(27)	$	184,921


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Assets
Corporate debt securities and commercial paper (due within 1 year)	$	205,702	$	—	$	(91)	$	205,611
	$	205,702	$	—	$	(91)	$	205,611

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Right of Use Asset and Lease Liability - Operating Lease Maturities (Details) $ in Thousands	Mar. 31, 2023 USD ($)
Right of Use Asset and Lease Liability
2023	$ 627
2024	851
2025	502
Total operating lease payments	1,980
Less: imputed interest	(199)
Total operating lease liability	$ 1,781

Asset Acquisition

3 Months Ended

Mar. 31, 2023

Asset Acquisition

Asset Acquisition

3. Asset Acquisition

Xinvento B.V.

On February 27, 2023, the Company, through its wholly-owned Dutch subsidiary, Rhythm Pharmaceuticals Netherlands B.V., a Dutch private limited liability company (“Rhythm BV”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Xinvento B.V., a Dutch private limited liability company based in the Netherlands (“Xinvento”), and the other parties named therein, pursuant to which, and concurrently with the execution thereof, Rhythm BV acquired all of the issued and outstanding shares of Xinvento. The aggregate consideration at closing was approximately $5,400, inclusive of transaction costs, as adjusted pursuant to the terms of the Purchase Agreement and subject to the distribution and payment terms set forth therein (the “Closing Purchase Price”).

In addition to the Closing Purchase Price, the Purchase Agreement provides for the payment of additional contingent consideration totaling up to $206,000 upon achievement of certain development, regulatory and commercial milestones by Xinvento, as follows: (i) up to an aggregate of $6,000 in clinical development milestones; (ii) up to an aggregate of $125,000 in regulatory approval and commercial milestones; and (iii) up to an aggregate of $75,000 in sales milestones in the event a second molecule is selected, developed and approved.

The total purchase consideration of $5,400 was composed of $4,520 of cash paid at closing, a $500 holdback, payable on the one-year anniversary of the acquisition, and $375 of acquisition-related costs. The Company determined that substantially all of the value as of acquisition date related to Xinvento’s In-Process Research and Development. As a result, the Company determined this transaction should be accounted for as an asset acquisition.

The assets acquired were In-Process Research and Development (IPR&D) assets. However, since the IPR&D assets were determined to have no alternative future use, the Company recognized the $5,400 of purchase consideration as research and development expense in the three months ended March 31, 2023.

The Company determined that the additional contingent consideration did not meet the definition of a derivative as of the acquisition date. Therefore, the Company did not record a contingent consideration liability on the acquisition date. The Company will recognize any future contingent consideration payments related to the Xinvento transaction in the period in which the achievement of the underlying milestones becomes probable.

Xinvento's results of operations are included in the condensed consolidated financial statements from the date of acquisition. For the three months ended March 31, 2023, the net loss associated with the operations of Xinvento were de-minimis in the Company’s condensed consolidated statements of operations.

Summary of Significant Accounting Policies (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023 USD ($) Institution segment	Mar. 31, 2022 USD ($)	Dec. 31, 2022
Segment Information
Number of operating segments \| segment	1
Number of reporting segments \| segment	1
Off Balance Sheet Risk and Concentrations of Credit Risk
Number of federally insured financial institutions \| Institution	2
Impairment of Long-Lived Assets
Tangible asset impairment charges	$ 0	$ 0
Revenue	$ 11,469	1,498
Customer concentration risk \| Customer one \| Revenue benchmark
Off Balance Sheet Risk and Concentrations of Credit Risk
Percentage of revenue generated from customer	83.00%		85.00%
Other (expense) income
Summary of Significant Accounting Policies
Reclassification of prior year balances		$ 160

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Schedule of potential common shares, presented based on amounts outstanding at each period end, excluded from computation of diluted net loss per share attributable to common stockholders


	Three Months Ended
	March 31,
	2023		2022
Stock options		6,973,369		7,248,111
Restricted stock units		1,046,232		784,041
Performance stock units		613,191		935,885
Potential common shares		8,632,792		8,968,037